UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-64373
COMPUTER TECHNOLOGY ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0797618
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6903 ROCKLEDGE DRIVE, BETHESDA, MARYLAND 20817
(Address of principal executive offices) (Zip Code)
(301) 581-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of JUNE 30, 1999.
COMMON STOCK, $.01 PAR VALUE 8,977,936
(Class) (Number of Shares)
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations
Three months and six months ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
* * * * * *
Signature
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's except for share amounts)
DECEMBER 31, 1998 JUNE 30, 1999
<S> <C> <C>
(UNAUDITED)
----------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 48,909 46,073
Other current assets 1,145 977
Recoverable income taxes - -
------ ------
Total current assets 50,054 47,050
Furniture and equipment, net 3,748 3,898
Costs in excess of net assets - 6,019
acquired
Other assets, net 3,546 3,798
----- -----
$57,348 $60,765
======= =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's except for share amounts)
DECEMBER 31, 1998 JUNE 30, 1999
(Unaudited)
<S> <C> <C>
----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--line of credit $16,223 $17,532
Current portion of long-term debt 1,667 1,667
Accounts payable 10,576 7,025
Accrued expenses 4,156 4,112
Excess of billings over costs and
contract prepayments 1,109 1,199
Other current liabilities 240 89
Income taxes payable 19 1,425
Deferred income taxes 3,822 3,927
------ ------
Total current liabilities 37,812 36,976
------ ------
Long-term debt, less current portion 1,667 834
Other long-term liabilities 2,135 2,435
Stockholders' equity:
Preferred stock, $1.00 par value
1,000,000 shares authorized and
none issued - -
Common Stock, $.01 par value,
20,000,000 shares authorized and
10,000,000 shares issued 100 100
Capital in excess of par value 7,855 7,842
Retained earnings 15,438 17,192
------ ------
23,393 25,134
Notes receivable from employees (698) (698)
Treasury stock, at cost
(1,415,905 shares in 1998 and
1,022,064 shares in 1999) (6,961) (3,916)
------ ------
Total stockholders' equity 15,734 20,520
------- -------
$57,348 $60,765
======= =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------
($000'S EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues $27,415 $29,794 $52,733 $58,328
Cost of contract revenues 21,713 23,856 41,689 45,510
Selling, general and
administrative expenses 3,620 4,095 6,858 8,517
Other expenses 161 418 769 829
----- ----- ----- -----
Operating profit 1,921 1,425 3,417 3,472
Interest expense 294 294 565 548
----- ----- ----- -----
Income before income taxes 1,627 1,131 2,852 2,924
Income taxes 611 453 1,070 1,170
----- ----- ----- -----
INCOME FROM CONTINUING
OPERATIONS 1,016 678 1,782 1,754
Loss from discontinued
operations, net of income taxes
(1,388) - (2,482) -
------ ------ ------ ------
Net income (loss) $( 372) $ 678 $ (700) $ 1,754
------ ---- ------ ------
Earnings (loss) per share:
CONTINUING OPERATIONS $ 0.12 $ 0.08 $ 0.20 $ 0.20
DISCONTINUED OPERATIONS (0.16) 0.00 (0.28) 0.00
------- ------ ------- ------
$(0.04) $ 0.08 $(0.08) $ 0.20
------ ------ ------ -------
Earnings (loss) per share
- -assuming dilution:
CONTINUING OPERATIONS $ 0.12 $ 0.07 $ 0.20 $ 0.19
DISCONTINUED OPERATIONS (0.16) 0.00 (0.28) 0.00
------ ------ ------- ------
$(0.04) $ 0.07 $(0.08) $ 0.19
======= ====== ======= ======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
($000'S)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------
1998 1999
<S> <C> <C>
---- ----
Operating activities:
Net income (loss) $ (700) $ 1,754
Non-cash expenses, net 860 1,566
Changes in assets and
liabilities, net 576 860
--- ---
Net cash provided by operating
activities 736 4,180
--- -----
Investing activities:
Investments in furniture
and equipment (965) (984)
Investment in acquired
subsidiary - (3,366)
---- ------
Net cash used in investing
activities (965) (4,350)
----- -------
Financing activities:
Net borrowings under bank
line of credit agreement 3,377 1,311
Purchases of treasury stock (2,315) (308)
Repayment of long-term debt (833) (833)
------ ------
Net cash provided by
financing activities 229 170
--- ---
Net increase (decrease) in cash and
cash equivalents $ - $ -
----- -----
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 1999 and the results of its operations and
its cash flows for the periods ended June 30, 1998 and 1999. The results of
operations presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The accompanying financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1998 which
are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
The provision for income taxes in the statements of operations has been
computed using the estimated annual effective tax rate expected to be
applicable for the full year.
On May 4, 1999, Computer Technology Associates, Inc. merged with Rey
Consulting Group, Inc. The merger was accounted for as a purchase. The
purchase price was $2.95 million in cash and 384,616 shares of the
registrant's common stock issued from its treasury. $6.02 million of
goodwill has been recorded which will be amortized over 20 years. Rey
Consulting Group will operate as a wholly owned subsidiary of the
registrant.
Certain prior year balances have been reclassed to conform with the
current period presentation.
<PAGE>
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1998 1999
----- -----
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 1,016 $ 678
Loss from discontinued operations (1,388) -
------- ----
Net income (loss) for both basic
and diluted earnings per share $ (372) $ 678
Denominator:
Denominator for basic earnings per
share --- Weighted average shares
outstanding 8,705,611 8,838,460
Dilutive potential common shares:
Employee stock options 228,775 400,884
--------- ---------
Denominator for diluted earnings per
share --- Adjusted weighted average
shares and assumed conversions 8,934,386 9,239,344
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1998 1999
---- ----
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 1,782 $ 1,754
Loss from discontinued operations (2,482) -
------ -----
Net income (loss) for both basic
and diluted earnings per share $ (700) $ 1,754
Denominator:
Denominator for basic earnings per
share --- Weighted average shares
outstanding 8,711,883 8,715,140
Dilutive potential common shares:
Employee stock options 340,225 407,189
Denominator for diluted earnings per
share --- Adjusted weighted average
shares and assumed conversions 9,052,108 9,122,329
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and Results of Operations
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those
matters discussed herein in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The words
"believe," "expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only
as of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
RESULTS OF OPERATIONS
The following tables set forth certain items in the Company's
Consolidated Statements of Operations as a percentage of contract revenues:
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, June 30,
----------- -----------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 100.0%
Cost of contract revenues 79.2 80.1 79.1 78.0
Selling, general and administrative
expenses 13.2 13.7 13.0 14.6
Other expenses 0.6 1.4 1.4 1.4
Operating profit 7.0 4.8 6.5 6.0
Interest expense 1.1 1.0 1.1 1.0
Income before income taxes 5.9 3.8 5.4 5.0
Provision for income taxes 2.2 1.5 2.0 2.0
Income from continuing operations 3.7 2.3 3.4 3.0
Loss from discontinued operations (5.1) 0.0 (4.7) 0.0
----- ----- ----- -----
Net income (loss) (1.4) 2.3 (1.3) 3.0
===== ===== ===== =====
</TABLE>
<PAGE>
The following tables set forth certain items in the Company's Statements
of Operations by operating segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(In thousands of dollars) JUNE 30, JUNE 30,
-------------- --------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Contract revenues:
$16,015 $20,396 $33,554 $39,989
Systems
11,400 7,684 19,179 16,625
Software
Consulting - 1,714 - 1,714
------- ------- ------- -------
$27,415 $29,794 $52,733 $58,328
======= ======== ======= =======
Operating profit (loss):
$ 393 $ 2,777 $1,647 $6,388
Systems
1,689 (1,152) 2,539 (2,305)
Software
Consulting - 218 - 218
------ ------ ------ ------
2,082 1,843 4,186 4,301
Other (161) (418) (769) (829)
expenses
------ ------ ------ ------
$1,921 $1,425 $3,417 $3,472
====== ====== ====== ======
</TABLE>
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998
CONTRACT REVENUES. Contract revenues increased 9% to $29.8 million for the
three months ended June 30, 1999 from $27.4 million for the three months ended
June 30, 1998. Contract revenues increased 11% to $58.3 million for the six
months ended June 30, 1999 from $52.7 million for the six months ended June
30, 1998. Contract revenues increased for both the three month and six month
periods ended June 30, 1999 as a result of the acquisition of the Rey
Consulting Group during the quarter and increased Systems Engineering revenues
offset by a decrease in Software Engineering revenues.
Systems engineering contract revenues increased 27% to $20.4 million for
the three months ended June 30, 1999 from $16.0 million for the three months
ended June 30, 1998. Contract revenues increased 19% to $40.0 million for the
six months ended June 30, 1999 from $33.6 million for the six months ended
June 30, 1998. Significant increases in Year 2000 embedded systems contract
revenues were offset by a decrease in contract revenues on a medical
information systems contract for the Department of Defense and other Federal
programs.
Software engineering contract revenues decreased 33% to $7.7 million for
the three months ended June 30, 1999 from $11.4 million for the three months
ended June 30, 1998. Contract revenues decreased 13% to $16.6 million for the
six months ended June 30, 1999 from $19.2 million for the six months ended
June 30, 1998. A number of significant Year 2000 remediation contracts,
including the State of Nebraska, were completed during the quarter.
COST OF CONTRACT REVENUES. Cost of contract revenues increased to $23.9
million, or 80.1% of contract revenues, for the three months ended June 30,
1999, from $21.7 million, or 79.2% of contract revenues, for the comparable
period in 1998. Cost of contract revenues increased to $45.5 million, or 78.0%
of contract revenues, for the six months ended June 30, 1999, from $41.7
million, or 79.1% of contract revenues, for the comparable period in 1998.
This decrease in cost of contract revenues as a percentage of contract
revenues for the six-month period resulted primarily from the increase of
higher margin YEAR 2000 embedded systems contracts as a percentage of overall
contract revenues.
SG&A. Selling, general and administrative expenses (SG&A) increased to
$4.1 million, or 13.7% of contract revenues, for the three months ended June
30, 1999, from $3.6 million, or 13.2% of contract revenues, for the comparable
period in 1998. SG&A increased to $8.5 million, or 14.6% of contract revenues,
for the six months ended June 30, 1999, from $6.9 million, or 13.0% of
contract revenues, for the comparable period in 1998. The increase in SG&A
reflects the Company's continued investment in infrastructure and in the
initiatives required to implement the Company's marketing strategies, as well
as increased focus on commercial markets.
OTHER EXPENSES. Other expenses increased to $0.4 million, or 1.4% of
contract revenues, for the three months ended June 30, 1999, from $0.2
million, or 0.6% of contract revenues, for the comparable period in 1998.
Other expenses were $0.8 million, or 1.4% of contract revenues, for the six
months ended June 30, 1999 and 1998.
OPERATING PROFIT. As a result of the foregoing, the Company's operating
profit decreased to $1.4 million, or 4.8% of contract revenues, for the three
months ended June 30, 1999, from $1.9 million, or 7.0% of contract revenues,
for the comparable period in 1998. Operating profit increased to $3.5 million,
or 6.0% of contract revenues, for the six months ended June 30, 1999, from
$3.4 million, or 6.5% of contract revenues, for the comparable period in 1998.
The Systems Engineering Group's operating profit increased substantially to
$2.8 million and $6.4 million, or 13.4% and 16.0% of contract revenues, for
the three months and six months ended June 30, 1999, respectively, from $0.4
million and $1.6 million, or 2.5% and 4.9% of contract revenues, for the
comparable periods in 1998. These significant increases are due primarily to
the higher margin YEAR 2000 embedded systems contracts. The Software
Engineering Group experienced an operating loss of $1.2 million and $2.3
million for the three months and six months ended June 30, 1999, respectively,
compared to an operating profit of $1.7 million and $2.5 million for the
comparable periods in 1998. The operating loss is due to an operating loss of
$3.2 million on a contract with the State of Texas which is now substantially
complete and no additional losses are anticipated. The Rey Consulting Group
had an operating profit of $0.2 million, or 12.7% of revenues, for the period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operations provided $4.2 million of cash during the first six months of
1999, primarily from the net income after adjustment for non-cash expenses of
$3.3 million and other working capital changes of $0.9 million. Cash used in
investing activities was $4.4 million comprised of $3.4 million for the
acquisition of the Rey Consulting Group and $1.0 million for purchases of
furniture and equipment. Cash provided by financing activities was $0.2
million, primarily from net borrowings under the bank line of credit agreement
of $1.3 million offset by $0.3 million for purchases of treasury stock and
$0.8 million for repayments of long-term debt.
The Company has a credit facility with a bank providing the ability to
borrow up to $23 million, including a revolving facility of $18 million and a
$5 million term facility. At June 30, 1999, there was $17.5 million
outstanding on the revolving facility and $2.5 million outstanding on the term
facility.
The Company believes that cash flow from operations and available bank
borrowings will provide adequate funds for continued operations for the next
twelve months.
OTHER MATTERS
The Company has assigned certain individuals to identify and correct Year
2000 compliance issues. Information Technology ("IT") systems with non-
compliant code are expected to be modified or replaced with systems that are
Year 2000 compliant. The individuals are also responsible for investigating
the readiness of suppliers, customers, and other third parties along with the
development of contingency plans where necessary.
All IT systems have been inventoried and assessed for compliance, and
detailed plans are in place for required system modifications or replacements.
Systems conversion and testing activities are underway with approximately 80%
of the systems already compliant. IT systems are expected to be fully
compliant by the end of the third quarter of 1999. Inventories and assessments
of non-IT systems have been completed. Progress of the Year 2000 compliance
program is continuously being monitored by senior management.
The Company has identified critical suppliers, customers and other third
parties and has surveyed their Year 2000 remediation programs. Risk
assessments and contingency plans, where necessary, will be finalized in the
third quarter of 1999.
Incremental costs directly related to Year 2000 issues are estimated to
be $650,000 to be incurred between 1998 and 1999 of which $525,000 (or 80%)
has been spent to date. Approximately 10% of the total estimated spending
represents costs to modify existing systems. Costs incurred prior to 1998 were
immaterial. This estimate assumes that the Company will not incur significant
Year 2000 related costs on behalf of suppliers, customers or other third
parties.
The Company's most likely potential risk is the inability of some
customers to order and pay on a timely basis. Contingency plans for Year 2000-
related interruptions are being developed and will include, but not be limited
to, the development of emergency backup and recovery procedures, remediation
of existing systems parallel with installation of new systems and
identification of alternate suppliers. All plans are expected to be completed
by the end of the third quarter of 1999.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates no major
interruption of its business activities, that will be dependent, in part, upon
the ability of third parties to properly remediate their IT and non-IT systems
in a timely manner. Although the Company has implemented the actions described
above to address third party issues, it has no ability to influence the
compliance actions of such parties. Accordingly, while the Company believes
its actions in this regard should have the effect of reducing Year 2000 risks,
it is unable to eliminate the ultimate effect Year 2000 risks will have on the
Company's operating results.
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments during the quarterly period ended
June 30, 1999. See Item 3 of the registrant's Annual Report on Form
10-K for the year ended December 31, 1998 for further discussion of
legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DOCUMENT LOCATION
3.1 Certificate of Incorporated by reference
Incorporation from Exhibit 3.1 to Amendment
No. 1 to Form S-1 filed on November 6, 1998
3.2 By-laws Incorporated by reference
from Exhibit 3.2 to Amendment
No. 1 to Form S-1 filed on November 6, 1998
27 Financial Data Electronic Filing Only
Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPUTER TECHNOLOGY ASSOCIATES, INC.
AUGUST 16, 1999 /S/ GREGORY H. WAGNER
Gregory H. Wagner
Executive Vice President,
Chief Financial Officer,
Principal Accounting Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 48489
<ALLOWANCES> 2416
<INVENTORY> 0
<CURRENT-ASSETS> 47050
<PP&E> 10077
<DEPRECIATION> 6179
<TOTAL-ASSETS> 60765
<CURRENT-LIABILITIES> 36976
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 20420
<TOTAL-LIABILITY-AND-EQUITY> 60765
<SALES> 58328
<TOTAL-REVENUES> 58328
<CGS> 45510
<TOTAL-COSTS> 45510
<OTHER-EXPENSES> 9346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> 2924
<INCOME-TAX> 1170
<INCOME-CONTINUING> 1754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1754
<EPS-BASIC> .20
<EPS-DILUTED> .19
</TABLE>
